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Case Update: Whether a tenant is entitled to a refund of rent if the break date falls between rent payment dates

The Supreme Court has this week confirmed that where a break date falls between rent payment dates and the rent is paid in advance the tenant is not entitled to a refund of rent relating to the period after the break date.

The Supreme Court unanimously rejected Marks and Spencer plc's argument that a term ought to be implied into the lease which entitled it to a refund of rent (and other sums paid in advance under the terms of the lease) for the period after the break date when it was no longer in occupation of the property.

The law established law relating to implied terms was upheld. The Supreme Court confirmed that in the majority of cases a term will only be implied into a lease where it is necessary to do so to give business efficacy to the contract and where the term is so obvious that it goes without saying. The Court clarified that the test does not require absolute necessity but instead focuses on whether the contract would lack commercial or practical coherence without the implied term.

The Supreme Court then went on to consider the law relating to the apportionment of rent. It held that it was well established under the common law that rent payable either in advance or in arrears could not be apportioned and that the decision in Ellis v Rowbotham [1900] which established thatrent payable in advance could not be apportioned pursuant to the Apportionment Act 1870 is correct.

Accordingly, given that these clear and well established principles relating to the apportionment of rent already existed at the date of the lease, the Supreme Court held that it could not imply an intention on behalf of the parties that the tenant was to receive an apportionment of the rent and other sums paid in advance upon termination of the lease by the exercise of the break clause.

Points to take away

Most modern leases require tenants to pay rent in advance and accordingly if a tenant is exercising a break clause and wants to make a successful claim for the refund of rent, the likelihood is that the lease must contain an express apportionment clause.

Before exercising a conditional break clause a tenant needs to consider where the break date falls in relation to the rent payment dates. If rent is payable in advance, the tenant cannot expect the landlord to refund the rent relating to any period after the break date. This will need to be factored into exit strategies when considering the tenant's other financial liabilities under the lease, including a possible dilapidations claim.

The Supreme Court did not directly deal with the question of whether a tenant is entitled to an apportionment of rent if there are no (remaining) conditions to be complied with as at the rent payment date. Accordingly, this will fall to be dealt with in another case. However, in the meantime, tenants will need to think carefully about whether or not to comply with any remaining conditions in advance of the final rent payment date albeit if the break is also conditional upon vacant possession, the tenant will be unable to ensure compliance with the break conditions until the break date.

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